The emergence of application service providers (ASPs) will have a greater impact on the services market than on the software vendor's market, according to Wilvin Chee, market analyst at IDC.
At a recent IDC presentation on the ASP phenomenon in the Asia-Pacific region, Chee projected that by 2004, ASPs will garner only 4-5 per cent of the total packaged applications software market in the Association of Southeast Asian Nations (ASEAN).
"The ASP sector isn't likely to rock the software market as we thought it would," he said, "and as a business service, it will provide a more lucrative business for service companies and network infrastructure providers."
Chee identified service integrators, consultants and outsourcers as one group of emerging ASP players, in addition to network providers like the telcos and Internet service providers. Application vendors like Solomon Software are also extending their offerings online as they move into the territory of the ASP pure plays.
Enterprise resource management (ERM) software leads the ASP offerings with 57 per cent of the pie. Because of the hefty costs involved in ERM implementations, many businesses are attracted to the ASP model for these solutions, said Chee. However, IDC predicts that vertical solutions will experience greater adoption in the coming years, even surpassing ERM and collaborative applications.
"Knowing one's business is an important criteria among users. Many users are increasingly turning to ASP vendors, especially those in the niche and vertical market, because they feel these vendors understand their business," Chee explained.
Quality of service and pricing also rank high in users' ASP selection. Although there are still more local than global ASP players in the Asia-Pacific region, the outlook remains positive. Revenue growth for the period between 1999 and 2004 will increase at an approximate compounded annual growth rate (CAGR) of 160 per cent in ASEAN, 150 per cent in Australia/NZ and 250 per cent in Greater China.
"ASP is really a business service and not a technology service. Vendors should therefore take time to find the right partners and select a niche market to target quality offerings instead of aiming at all segments of the market. In this space, having domain knowledge counts. Players with credible track records and strong reputations will stand out in the future," he said.
Chee noted that the ASP market caters predominantly to the small and medium enterprises.
"Eighty per cent of ASP users are from the SME sector," Chee said.
"Not many large corporations want to go into this market for two reasons. First, they already have their own IT infrastructure in place. Second, the ASP market is new and they aren't keen to jump into it until issues such as integration and scalability are resolved."
According to IDC's estimates, industries fuelling the demand for ASP throughout the Asia-Pacific region include manufacturing, at 29 per cent; business and communication service, at 19 per cent; retail and wholesale, at 14 per cent. ASP adoption in the manufacturing sectors, which typically have low levels of IT utilisation, is driven primarily by China and India, said Chee.
On the other hand, business and communications, retail and wholesale, and banking and finance are driven by countries such as Singapore, Malaysia, Australia and New Zealand.